by Kodjo Adadevoh

Created on: January 10, 2009   Last Updated: December 06, 2009

In deciding which stocks to avoid in 2009, investors have to consider the sectors of the economy that are the most at risk in the current economic downturn. Many stocks have experienced significant declines and can now be purchased at discounts to intrinsic value. A long term investor or bull may consider the current environment a perfect opportunity to purchase stocks at a discount. However, investors with a shorter investment timeframe must avoid certain stocks in the riskier sectors of the market, such as retail, energy, home construction, automobile, airline and banking.

The stocks to avoid in 2009 are stocks of companies in industries with the most exposure to leverage, consumer discretionary spending and a weakening dollar. Companies that immediately come to mind are General Motors [GM]: General Motor is currently in chapter 11 bankruptcy, this is evidence of the impact the economy is having on GM. Though some might argue that the root causes of GMs problems lie elsewhere and that GM's cost structure is ultimately what caused GMs financial woes. The impact of the recession on the automobile industry cannot be overstated as more successful companies such as Toyota [TM] are suffering the same plight, as they experience slower sales.

AMR Corporation [AMR], which owns American Airlines, has struggled for a number of years, with ballooning overhead costs and more recently with a reduction in ridership due to the global economic recession. Some might argue that AMR's problems pre-date the current recession. AMR Corporation's existing financial challenges and the recession are combining to pressurize [AMR] stock downwards. A recovery is unlikely in the short-term and the current financial climate does not bode well for AMR, at least through the end of the year and into 2010.

Citigroup [C]: Citigroup's stock should be avoided in 2009. Citigroup is suffering the fate of its risky off balance sheet investments and excessive leverage. Citigroup effectively squandered capital and destroyed stock holder equity in the process, leaving many investors very despondent. In the last two years, investors have witness an 800% decline in their stock price with their share price dropping from approximately $33.23 to approximately $4.06 today. The financial industry played a significant role in contributing to the current global economic meltdown, and many believe that there are further challenges ahead with respect to further write-downs in the assets of banks like Citigroup.

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